Apple’s Rising Stock Price Drives Another Price Target Change

Source: Apple

Another analyst has raised his price target on Apple (NASDAQ:AAPL) shares as the company’s stock continues to reach new highs in the wake of a better-than-expected quarterly earnings report and strong international sales. Canaccord Genuity analyst T. Michael Walkley raised his price target on Apple to $660 from his previous target of $610 while keeping his “Buy” rating, reports Barron’s. This week, Apple shares nearly reached Walkley’s previous price target when the stock achieved a new one-year high of $604.41 on Tuesday.

Apple reported March quarter revenue of $45.6 billion and earnings per share of $11.62, beating the Street’s expectations of $43.7 billion in revenue and $10.19 EPS. The Cupertino, California-based company also reported selling 43.7 million iPhones, 16.4 million iPads, and 4.1 million Macs. Apple’s strong international sales helped fuel its iPhone growth. As noted by CEO Tim Cook in an earnings call transcript provided by Seeking Alpha, Apple “had the largest total sales of iPhone in the BRIC [Brazil, Russia, India, China] countries that we’ve ever seen in our history.”

Walkley based his substantial price target increase on a recent survey conducted by Canaccord Genuity that found that the iPhone 5S remained the top-selling smartphone at all “tier-1” U.S. carriers, as well as at various global channels. As noted by The Street, the survey showed that more smartphone consumers are opting for early upgrades to more expensive models.

“We believe the small price differential in monthly handset installment payments between these more expensive devices and less expensive smartphones has contributed to this mix to more expensive devices,” wrote Walkley in a note obtained by The Street. “We believe these trends could also enable Apple to charge higher prices for the larger-screen iPhones given our belief consumers are somewhat less sensitive to higher device prices when installment payments are pro-rated over a 20-24 month period.”

Walkley believes that this trend will benefit Apple, as the company is expected to unveil two new iPhone models with larger screen sizes later this year. Several unnamed sources have reported that Apple will release a 4.7-inch and a 5.5-inch iPhone in the third quarter of this year.

“Further, our U.S. surveys indicated tier-1 carrier customers were increasingly opting for early-upgrade programs and showed greater propensity toward more expensive high-tier smartphones when enrolling in these programs,” wrote Walkley, per The Street. “We believe these trends could enable Apple to charge higher prices for larger screen iPhone 6 models. We believe Apple should win back meaningful high-end market share during 2H/2014 based on our belief new iPhones with larger screen sizes could create a strong upgrade cycle among Apple’s loyal base.”

The Canaccord Genuity analyst also noted that Apple will still derive a boost from the introduction of a large-screen iPhone even if it negatively impacted its tablet sales. “We believe Apple could charge a premium for a potential phablet-type iPhone 6 SKU, and with carrier subsidies or smartphone leasing-type payments to generate solid incremental gross margin dollars from this device, even if it partially cannibalizes some iPad tablet sales,” wrote Walkley, according to AppleInsider.

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